FIRST FINANCIAL BANKSHARES INC
For the period ended Dec 31, 2023. Filed Feb 26, 2024.
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FY2023 · Filed Feb 26, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of First Financial Bankshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of First Financial Bankshares, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive earnings (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| Allowance for Loan Losses | |
| Description of the Matter | As of December 31, 2023, the Company’s loan portfolio totaled $7.1 billion and the related allowance for credit losses (ACL) was $88.7 million. The Company calculates their allowance for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses, utilizing a forward-looking expected loss model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the Company’s loan portfolio. As discussed in Notes 1 and 3 of the consolidated financial statements, the ACL is an amount which represents management’s best estimate of expected credit losses over the contractual life of the Company’s loan portfolio as of the balance sheet date. The ACL includes credit loss estimates for loans evaluated using common risk characteristics such as financial asset type, collateral type, and industry of the borrower. Historical losses are correlated to economic variables that are determined to be the most relevant indicators of expected losses. Those economic variables are forecasted over the reasonable and supportable forecast period to determine the current expected credit losses. Qualitative adjustments are then made to account for factors that management does not believe are captured within the CECL quantitative models. Management applies judgment in estimating the ACL and, in particular, identifying and quantifying qualitative adjustments included within the ACL. |
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| Auditing management’s estimate of the allowance for credit losses involved a high degree of subjectivity due to the complexity of the models and the qualitative adjustments included in the estimate. Management’s identification and measurement of the qualitative adjustments is highly judgmental and could have a significant impact on the allowance for credit losses. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding of the Company’s process for estimating the allowance for credit losses, including the models used and the qualitative adjustments made to establish the ACL. We evaluated the design and tested the operating effectiveness of the controls over the model methodology, including the qualitative adjustment methodology, the validation and monitoring procedures performed over the models, the identification and the measurement of the qualitative adjustments, the reliability and accuracy of data used to estimate the qualitative adjustments, and management’s review and approval of the qualitative adjustments.To test the models, with the support of specialists, we evaluated the model methodology and design, as well as performed procedures over the Company’s correlation of the relevant economic variables to historical losses. On a sample basis, we independently tested the key inputs used in the models by agreeing to internal and external sources. Additionally, on a sample basis, we performed an independent recalculation of the models’ output. To test the qualitative adjustments, we evaluated the identification and measurement of the adjustments, including the basis for concluding the adjustments were reasonable. On a sample basis, we independently tested the completeness and accuracy of data used by the Company to estimate the qualitative adjustments by agreeing underlying data to relevant sources and with the support of specialists, recalculated the qualitative adjustments. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Fort Worth, Texas
February 23, 2024
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